Trust investment choices for a difficult beneficiary

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afan
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Re: Trust investment choices for a difficult beneficiary

Post by afan » Fri Apr 12, 2019 11:25 am

Switching to a fund would save the difference between the RIA's fee and the fund expense ratio. But then the OP, rather than the RIA, would be responsible for selecting the fund. Plus the OP would still be dealing with the trust and the beneficiary.
That could be a good solution for a cooperative beneficiary- save some money and get the same return. Here, it would not address the primary goal of getting the OP off the hook.
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dbr
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Re: Trust investment choices for a difficult beneficiary

Post by dbr » Fri Apr 12, 2019 3:46 pm

bsteiner wrote:
Fri Apr 12, 2019 9:59 am
dbr wrote:
Fri Apr 12, 2019 9:11 am
... 3% is an ultraconservative withdrawal rate intended to protect longevity to a point where chances of still being alive are minimal. ....
The 4% rule is intended to make sure that the principal is unlikely to run out during a retiree's lifetime. It doesn't take into account the next generation.

3% is likely to preserve the real value for future generations.

What's appropriate depends on all of the facts and circumstances.
Well, acceptable safe withdrawal rate for legal purposes is something that could be debated but I would buy your point. In that case using such a conventional analysis of the financial situation might be ammunition to support the argument that the trustee is hoarding the principal and starving the beneficiary. I have no opinion regarding the legal assessment of any of this, but language did seem to say without regard for the remaindermen and then that got confused as there are two trusts that may have different language. It's probably a good thing the beneficiary has not yet consulted an attorney, or maybe he did at one point and what we have now is a result of that.

I wish I had an actually helpful suggestion. Maybe the best idea is one already made by a previous poster that what is being done is as good an answer as anyone is going to get and to forge on.

Gill
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Re: Trust investment choices for a difficult beneficiary

Post by Gill » Fri Apr 12, 2019 4:31 pm

afan wrote:
Fri Apr 12, 2019 10:46 am
Gill, in your days as a trust officer would you do any due diligence on the beneficiaries before accepting appointment as a trustee? If not, I assume you found yourself with some difficult ones. What did you do?
Although we were always anxious to put new accounts on the books, we always did our best to investigate all aspects of a new trust before accepting the role of trustee, usually even more so in the case of an ongoing trust with a current trustee. The beneficiary was certainly an important aspect of our inquiry and a very difficult beneficiary could be a reason for declining a trust. As I mentioned above, I'd certainly have been inclined to refuse a situation such as has been described in this thread.

I often think of a guardianship that had been accepted in the 1960's by our bank before I first entered the business. A two-year old boy had inherited outright from his grandmother over $1 million which would be the equivalent of $8 million or more today. Under New York law this was held in a guardianship until he reached age 21 at which time he would receive the assets outright. Inheriting this money totally ruined him. The account became an absolute nightmare when he was in his teens including calls to the trust officer in the middle of the night from police for various offenses committed by the ward and constant requests for funds to bail him out of trouble. The account had diminished considerably when he reached majority at 21 and the bank was relieved to turn over to him the balance remaining. As appealing as the account sounded at its inception, the bank had 19 years to regret ever accepting it. It was a good lesson for me early in my career to learn that some accounts are just not worth it.
Gill
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crre
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Re: Trust investment choices for a difficult beneficiary

Post by crre » Fri Apr 12, 2019 8:18 pm

my sympathies. i am in a similar situation with my sister. regarding an annuity, i was recently given this advice:

Be aware that an annuity can be sold for pennies on the dollar, so if your sister has issues with controlling spending, you may want to look into something controlled, like a trust.

full thread here:

https://boards.fool.com/annuity-3417407 ... e#34174074

so if an annuity, then definitely one within the trust.

c.

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Sandtrap
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Re: Trust investment choices for a difficult beneficiary

Post by Sandtrap » Fri Apr 12, 2019 8:38 pm

123 wrote:
Thu Apr 11, 2019 3:33 pm
FBN2014 wrote:
Thu Apr 11, 2019 2:18 pm
...The trust language says the trustee shall consider the needs of the primary beneficiary paramount without regard for the remainder beneficiaries. The primary beneficiary is a very difficult person ...
From my perspective an annuity for the primary beneficiary would satisfy the mandate of the trust. An annuity payout guarantee based on the actuarial expected remaining lifetime of the primary beneficiary seems in keeping with the spirit of the trust.

Edited to add:
I'm guessing that if the beneficiary is "difficult" monthly distributions are the most practical.
Having been in a similar situation with "difficult" beneficiaries.
1. Seek legal counsel.
2. Great idea if doable and legal as it divests the trustee of further duties. It's irreversible and cannot be changed. As in "deal with it" and "count your blessings". From that perspective, an SPIA may be a viable option.

ResearchMed
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Re: Trust investment choices for a difficult beneficiary

Post by ResearchMed » Fri Apr 12, 2019 11:24 pm

Sandtrap wrote:
Fri Apr 12, 2019 8:38 pm
123 wrote:
Thu Apr 11, 2019 3:33 pm
FBN2014 wrote:
Thu Apr 11, 2019 2:18 pm
...The trust language says the trustee shall consider the needs of the primary beneficiary paramount without regard for the remainder beneficiaries. The primary beneficiary is a very difficult person ...
From my perspective an annuity for the primary beneficiary would satisfy the mandate of the trust. An annuity payout guarantee based on the actuarial expected remaining lifetime of the primary beneficiary seems in keeping with the spirit of the trust.

Edited to add:
I'm guessing that if the beneficiary is "difficult" monthly distributions are the most practical.
Having been in a similar situation with "difficult" beneficiaries.
1. Seek legal counsel.
2. Great idea if doable and legal as it divests the trustee of further duties. It's irreversible and cannot be changed. As in "deal with it" and "count your blessings". From that perspective, an SPIA may be a viable option.
Alas, as crre mentioned above, there are all sorts of ads on TV these days (meaning, it's not hard to find 'em) with offers to purchase assorted policies and change "income streams" into "cash NOW!!!!!" (e.g., life insurance and other "structured settlements", so presumably life annuities would fit right in...).

RM
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Sandtrap
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Re: Trust investment choices for a difficult beneficiary

Post by Sandtrap » Sat Apr 13, 2019 12:16 am

ResearchMed wrote:
Fri Apr 12, 2019 11:24 pm
Sandtrap wrote:
Fri Apr 12, 2019 8:38 pm
123 wrote:
Thu Apr 11, 2019 3:33 pm
FBN2014 wrote:
Thu Apr 11, 2019 2:18 pm
...The trust language says the trustee shall consider the needs of the primary beneficiary paramount without regard for the remainder beneficiaries. The primary beneficiary is a very difficult person ...
From my perspective an annuity for the primary beneficiary would satisfy the mandate of the trust. An annuity payout guarantee based on the actuarial expected remaining lifetime of the primary beneficiary seems in keeping with the spirit of the trust.

Edited to add:
I'm guessing that if the beneficiary is "difficult" monthly distributions are the most practical.
Having been in a similar situation with "difficult" beneficiaries.
1. Seek legal counsel.
2. Great idea if doable and legal as it divests the trustee of further duties. It's irreversible and cannot be changed. As in "deal with it" and "count your blessings". From that perspective, an SPIA may be a viable option.
Alas, as crre mentioned above, there are all sorts of ads on TV these days (meaning, it's not hard to find 'em) with offers to purchase assorted policies and change "income streams" into "cash NOW!!!!!" (e.g., life insurance and other "structured settlements", so presumably life annuities would fit right in...).

RM
Sadly, true.
Back to the trust then.

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celia
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Re: Trust investment choices for a difficult beneficiary

Post by celia » Sat Apr 13, 2019 3:56 am

FBN2014 wrote:
Fri Apr 12, 2019 10:31 am
I realized my original post was confusing. I meant to say that the payout would increase by $20,000 from $38,000 to $58,000.
If you do go with a fixed annuity, I suggest NOT giving the beneficiary anything near $58k a year. As inflation goes up over time, you will be unable to increase his monthly benefit. And brother’s expenses are likely to grow as he gets older. What if he needs assisted living in 10 years and it costs more than $58k and you started giving him more money per month starting in 2019. You will be boxing yourself (and him) into a corner.

I would also coordinate with his SS payout. If you could ‘incentivize’ him to hold off on collecting and start giving him more, say $42K a year as long as he waits, and then once he starts SS, take his SS into account and only give him on top of the SS to reach $44k a year. That will allow him to get a bigger benefit by waiting while you would get time to grow the account value.

afan
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Re: Trust investment choices for a difficult beneficiary

Post by afan » Sat Apr 13, 2019 10:07 am

celia wrote:
Sat Apr 13, 2019 3:56 am

If you do go with a fixed annuity, I suggest NOT giving the beneficiary anything near $58k a year. As inflation goes up over time, you will be unable to increase his monthly benefit. And brother’s expenses are likely to grow as he gets older. What if he needs assisted living in 10 years and it costs more than $58k and you started giving him more money per month starting in 2019. You will be boxing yourself (and him) into a corner.

I would also coordinate with his SS payout. If you could ‘incentivize’ him to hold off on collecting and start giving him more, say $42K a year as long as he waits, and then once he starts SS, take his SS into account and only give him on top of the SS to reach $44k a year. That will allow him to get a bigger benefit by waiting while you would get time to grow the account value.
This would be good responsible behavior by a trustee. Unfortunately, in this case it would require cooperation from the beneficiary. As described, this beneficiary is morally opposed to the concept of saving for the future. Any plan that limits current income is going to be unacceptable. This approach also would keep the trustee involved in these decisions about how to handle changes in income down the road. The beneficiary would be best served by taking an approach that considers future needs as well as current income.

If this beneficiary were inclined to go along with what you propose then the OP would not be seeking a way out.

By they way, this is exactly what I had been hoping to hear from corporate trustee candidates when I was shopping for them. I contacted over a dozen and none had anything to say about making these decisions, even for a cooperative beneficiary. Either there are no simple solutions or the banks were so determined to market their investing genius that they refused to discuss anything else.

The best option seems to be an annuity for the trust that can be spent entirely on the primary beneficiary to the exclusion of the remainder people and some balanced plan for the trust that is supposed to consider them. Although it would not completely get the OP out of the trustee business, the beneficiary would be better off if the trust owned the annuity. The trustee's job would be limited to writing a monthly check to the beneficiary in the amount equal to the annuity payment. Since the amount would be fixed, this could be put on autopilot. The trust that is supposed to care for remainder people as well is still up in the air.

Hoping to hear how Gill would have handled this, assuming a cooperative beneficiary. The underlying circumstances, some money available to be spent entirely on primary beneficiary, some to serve both the primary and the remainder people, must come up all the time.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

JGoneRiding
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Re: Trust investment choices for a difficult beneficiary

Post by JGoneRiding » Sat Apr 13, 2019 10:29 am

Ianal

Just curious does the trust document allow for the trustee to take a fee? If it does not why would ANY one take this on? Could you threaten the beneficiary that if he continues to annoy you you are going to hire a corporate trustee and then he will get LESS monies a year?

You are making me rethink being the trustee of my brothers tiny SNT. But I also have a thick skin and could care less how annoyed he is at me. I would suggest you simply disengage. Tell him he gets x % yearly and unless it becomes medically necessary he won't get any more than that period and that the y that produces might go down with time.

dbr
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Re: Trust investment choices for a difficult beneficiary

Post by dbr » Sat Apr 13, 2019 10:33 am

JGoneRiding wrote:
Sat Apr 13, 2019 10:29 am
Ianal

Just curious does the trust document allow for the trustee to take a fee? If it does not why would ANY one take this on? Could you threaten the beneficiary that if he continues to annoy you you are going to hire a corporate trustee and then he will get LESS monies a year?

You are making me rethink being the trustee of my brothers tiny SNT. But I also have a thick skin and could care less how annoyed he is at me. I would suggest you simply disengage. Tell him he gets x % yearly and unless it becomes medically necessary he won't get any more than that period and that the y that produces might go down with time.
That is probably what a lot of us here think. Note that converting all the assets to an annuity rules out any chance of getting more if medically necessary, which is why the annuity is probably not a feasible answer to this dilemma.

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Re: Trust investment choices for a difficult beneficiary

Post by Gill » Sat Apr 13, 2019 11:01 am

afan wrote:
Sat Apr 13, 2019 10:07 am
Hoping to hear how Gill would have handled this, assuming a cooperative beneficiary. The underlying circumstances, some money available to be spent entirely on primary beneficiary, some to serve both the primary and the remainder people, must come up all the time.
As I posted earlier, I kind of liked the idea of the immediate annuity with the caveat that the guarantee be purchased as suggested by the OP. This runs the risk of distributing all the principal and leaving nothing for the remaindermen, but it at least has the possibility of them receiving something in the event of a premature death of the beneficiary.

I can't say I ever purchased an SPIA for a trust using the trust company's investment authority, although I have handled trusts where the trust directed such a purchase. The language of this trust and the situation with the beneficiary gives me comfort in making such a purchase. As a practical matter, I can't see a corporate trustee purchasing an SPIA without specific authority in the instrument or a court order, but individual trustees can sometimes do things that corporate trustees can't.

My guess is that most corporate trustee would opt for the present arrangement in the trust which is a fixed payout of a percentage of the trust. That leaves open the possibility of increased remittances to the income beneficiary and something left for the remaindermen. Corporate trustees like to think they can manage the assets for a greater return than would be obtained through an SPIA. I don't believe it and therefore come down on the side of buying the SPIA, somehow making it unassignable so the beneficiary can't sell it and terminating the trust because of lack of assets.
Gill
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dbr
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Re: Trust investment choices for a difficult beneficiary

Post by dbr » Sat Apr 13, 2019 11:06 am

Gill wrote:
Sat Apr 13, 2019 11:01 am
afan wrote:
Sat Apr 13, 2019 10:07 am
Hoping to hear how Gill would have handled this, assuming a cooperative beneficiary. The underlying circumstances, some money available to be spent entirely on primary beneficiary, some to serve both the primary and the remainder people, must come up all the time.
As I posted earlier, I kind of liked the idea of the immediate annuity with the caveat that the guarantee be purchased as suggested by the OP. This runs the risk of distributing all the principal and leaving nothing for the remaindermen, but it at least has the possibility of them receiving something in the event of a premature death of the beneficiary.

I can't say I ever purchased an SPIA for a trust using the trust company's investment authority, although I have handled trusts where the trust directed such a purchase. The language of this trust and the situation with the beneficiary gives me comfort in making such a purchase. As a practical matter, I can't see a corporate trustee purchasing an SPIA without specific authority in the instrument or a court order, but individual trustees can sometimes do things that corporate trustees can't.

My guess is that most corporate trustee would opt for the present arrangement in the trust which is a fixed payout of a percentage of the trust. That leaves open the possibility of increased remittances to the income beneficiary and something left for the remaindermen. Corporate trustees like to think they can manage the assets for a greater return than would be obtained through an SPIA. I don't believe it and therefore come down on the side of buying the SPIA, somehow making it unassignable so the beneficiary can't sell it and terminating the trust because of lack of assets.
Gill
Gill, wouldn't you be worried that taking an SPIA leaves the beneficiary with no resources to meet contingencies such as health problems, long term care*, disability, changes in circumstances, response to reasonable requests to spend a lump sum, etc. In addition, if the trust implies a time line of 35 years or so, the annuity fails to anticipate the inflation of costs. That might be judged irresponsible if the annuity is not inflation indexed. I don't think financial planners ever suggest the complete conversion of assets to an annuity.

*A question would be should the trust not be purchasing LTC insurance for the beneficiary, or is that sort of thing beyond the obligation of a trustee.

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Re: Trust investment choices for a difficult beneficiary

Post by letsgobobby » Sat Apr 13, 2019 11:16 am

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Last edited by letsgobobby on Thu Apr 18, 2019 12:14 am, edited 1 time in total.

Gill
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Re: Trust investment choices for a difficult beneficiary

Post by Gill » Sat Apr 13, 2019 11:20 am

dbr wrote:
Sat Apr 13, 2019 11:06 am
Gill wrote:
Sat Apr 13, 2019 11:01 am
afan wrote:
Sat Apr 13, 2019 10:07 am
Hoping to hear how Gill would have handled this, assuming a cooperative beneficiary. The underlying circumstances, some money available to be spent entirely on primary beneficiary, some to serve both the primary and the remainder people, must come up all the time.
As I posted earlier, I kind of liked the idea of the immediate annuity with the caveat that the guarantee be purchased as suggested by the OP. This runs the risk of distributing all the principal and leaving nothing for the remaindermen, but it at least has the possibility of them receiving something in the event of a premature death of the beneficiary.

I can't say I ever purchased an SPIA for a trust using the trust company's investment authority, although I have handled trusts where the trust directed such a purchase. The language of this trust and the situation with the beneficiary gives me comfort in making such a purchase. As a practical matter, I can't see a corporate trustee purchasing an SPIA without specific authority in the instrument or a court order, but individual trustees can sometimes do things that corporate trustees can't.

My guess is that most corporate trustee would opt for the present arrangement in the trust which is a fixed payout of a percentage of the trust. That leaves open the possibility of increased remittances to the income beneficiary and something left for the remaindermen. Corporate trustees like to think they can manage the assets for a greater return than would be obtained through an SPIA. I don't believe it and therefore come down on the side of buying the SPIA, somehow making it unassignable so the beneficiary can't sell it and terminating the trust because of lack of assets.
Gill
Gill, wouldn't you be worried that taking an SPIA leaves the beneficiary with no resources to meet contingencies such as health problems, long term care*, disability, changes in circumstances, response to reasonable requests to spend a lump sum, etc. In addition, if the trust implies a time line of 35 years or so, the annuity fails to anticipate the inflation of costs. That might be judged irresponsible if the annuity is not inflation indexed. I don't think financial planners ever suggest the complete conversion of assets to an annuity.



*A question would be should the trust not be purchasing LTC insurance for the beneficiary, or is that sort of thing beyond the obligation of a trustee.
Yes, I recognize that risk and perhaps the annuity could also have the inflation adjustment or the percentage adjustment clause. I'm also assuming the trustee gets the approval of everyone interested in the trust and possibly also the blessing of a court. Perhaps my judgment is also swayed because I'd like to see the trust terminated and the OP out of the trustee business. Beneficiary will also have SS which is inflation adjusted to some extent. There is no perfect solution but this beneficiary seems to be nothing but trouble and can't be protected from himself or from every possibility down the road.
Gill
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ResearchMed
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Re: Trust investment choices for a difficult beneficiary

Post by ResearchMed » Sat Apr 13, 2019 11:23 am

dbr wrote:
Sat Apr 13, 2019 11:06 am
Gill wrote:
Sat Apr 13, 2019 11:01 am
afan wrote:
Sat Apr 13, 2019 10:07 am
Hoping to hear how Gill would have handled this, assuming a cooperative beneficiary. The underlying circumstances, some money available to be spent entirely on primary beneficiary, some to serve both the primary and the remainder people, must come up all the time.
As I posted earlier, I kind of liked the idea of the immediate annuity with the caveat that the guarantee be purchased as suggested by the OP. This runs the risk of distributing all the principal and leaving nothing for the remaindermen, but it at least has the possibility of them receiving something in the event of a premature death of the beneficiary.

I can't say I ever purchased an SPIA for a trust using the trust company's investment authority, although I have handled trusts where the trust directed such a purchase. The language of this trust and the situation with the beneficiary gives me comfort in making such a purchase. As a practical matter, I can't see a corporate trustee purchasing an SPIA without specific authority in the instrument or a court order, but individual trustees can sometimes do things that corporate trustees can't.

My guess is that most corporate trustee would opt for the present arrangement in the trust which is a fixed payout of a percentage of the trust. That leaves open the possibility of increased remittances to the income beneficiary and something left for the remaindermen. Corporate trustees like to think they can manage the assets for a greater return than would be obtained through an SPIA. I don't believe it and therefore come down on the side of buying the SPIA, somehow making it unassignable so the beneficiary can't sell it and terminating the trust because of lack of assets.
Gill
Gill, wouldn't you be worried that taking an SPIA leaves the beneficiary with no resources to meet contingencies such as health problems, long term care*, disability, changes in circumstances, response to reasonable requests to spend a lump sum, etc. In addition, if the trust implies a time line of 35 years or so, the annuity fails to anticipate the inflation of costs. That might be judged irresponsible if the annuity is not inflation indexed. I don't think financial planners ever suggest the complete conversion of assets to an annuity.

*A question would be should the trust not be purchasing LTC insurance for the beneficiary, or is that sort of thing beyond the obligation of a trustee.
I'm not sure how this individual gets enough for regular life expenses (we aren't talking huge annual income here, though the cost of living in the area matters, of course) AND has enough for serious care later.

Wouldn't such an individual end up on Medicaid for long term care?
If the money is NOT annuitized (or, say, there is a chunk not annuitized for this purpose), then that could be applied for a "first year's costs" to help gain access to a nicer facility, if necessary...?

There won't be a way to maximize all possible needs. Best bet would be to optimize for the most likely, and try to have some fallback for the less likely.
Perhaps a written plan with contingencies would be wise, lest beneficiary later complain that "THIS happened!", without thinking through "what if THAT had happened".

I take it that discussing all or much of this with beneficiary won't work, or has been tried and didn't work, given the situation?

I'd be inclined to turn it over to some professional, or at least, give a warning to beneficiary, as suggested above, that if it gets too difficult, then that's what will be done, with a fee taken out for the pro.

I'm not sure how to handle the trust where the remainder folks ARE to be taken into account.
How ever does one prioritize that without some serious directive?

And yes, if an annuity can be made "unassignable", that fixes that potential problem!

RM
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Dottie57
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Re: Trust investment choices for a difficult beneficiary

Post by Dottie57 » Sat Apr 13, 2019 11:41 am

letsgobobby wrote:
Sat Apr 13, 2019 11:16 am
No one else thinks 3% is too conservative? The beneficiary is in his sixties. 3.5 or even 4% would be reasonable.

I also think 40/60 is very conservative. Why not 60/40?

You could also annuitize, say, half with an inflation indexed SPIA, and then increase the equity exposure of the other half to 70 or 80%.

Any combination of these actions would increase the beneficiary's income as well as the ability to meet future, rising expenses such as health care.
The 40/60 will have less volatility than 60/40. I am unclear if SWR is being used or if a certain percent of remaining balance is used.

Agree about annuity with portion of funds for an annuity. Leave some for medical or other emergencies later in life.

afan
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Re: Trust investment choices for a difficult beneficiary

Post by afan » Sat Apr 13, 2019 1:31 pm

For this situation it is hard to see any satisfactory solution that continues the status quo. That would mean the trust continues, some trustee makes the investment and distribution decisions and the beneficiary continues to complain.

Dumping the trust on a corporate trustee would get the OP out of it, but it could be difficult to find a trustee that would take the job. This is a small amount of money by trust standards. Many trust companies would not consider any trust this size. For those that would take something this small it would only be profitable if there were nearly no work to do. A small trust means small fees and a disgruntled beneficiary means high costs.

If the assets were much higher, say 100 fold, a company might figure it could do well even if they had to deal with the beneficiary. Perhaps farm out as much as possible to outside counsel and charge the trust for the work.

At this size, it would hardly be worth it.
Plus, the fees would eat up much of the income each year.

That is why the annuity is so appealing.
But the other assets would then be too small for any trust company, which would leave the OP in the trustee business forever.

The current plan may be giving the beneficiary too much money, to the detriment of those remainder people who are supposed to get something. Perhaps get an opinion about that from an experienced trusts and estates lawyer. Figure out a responsible division of income between the difficult beneficiary and the remainder people, and do what the lawyer suggests about getting all concerned to agree. The primary beneficiary may not agree but may find himself confronted by a trustee who is playing it perfectly by the book. Get court approval if possible.

Annuity with no term certain for the trust that is only for the primary beneficiary. Conventional management of the other trust with the division between primary and remainder people spelled out in the court approved agreement. If possible, take the costs for all this legal work from the trust that is only for the primary beneficiary.

At that point the OP would still be trustee and still have some interaction with the difficult beneficiary but there would be no remaining discretion.

One problem: if the beneficiary still makes trouble, then there would be no trust assets to pay an attorney in the future. Against this, consider setting aside some amount to pay trust expenses and buying an annuity with the rest. If the trust owned the annuity and received the payments, then OP could replenish the expense fund from the annuity payments. It might help for the beneficiary to know this. The more he forces the trust to spend on legal fees the less he collects as income.

In addition to legal fees there would be tax preparation and accounting costs, for example.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

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FBN2014
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Re: Trust investment choices for a difficult beneficiary

Post by FBN2014 » Sat Apr 13, 2019 1:45 pm

JGoneRiding wrote:
Sat Apr 13, 2019 10:29 am
Ianal

Just curious does the trust document allow for the trustee to take a fee? If it does not why would ANY one take this on? Could you threaten the beneficiary that if he continues to annoy you you are going to hire a corporate trustee and then he will get LESS monies a year?

You are making me rethink being the trustee of my brothers tiny SNT. But I also have a thick skin and could care less how annoyed he is at me. I would suggest you simply disengage. Tell him he gets x % yearly and unless it becomes medically necessary he won't get any more than that period and that the y that produces might go down with time.
Trust does allow for a trustee fee but as a sibling I do not feel that would be proper. I only reimburse myself for any out of pocket expenses which are minimal. The investment advisor of course takes a fee of .38%. The beneficiary lives for free in our parent's home (I agreed not to sell as long as he is alive), he is responsible for his other living expenses by using the distributions made to him and any money he earns on his own (I don't know how much if any that is). He has been getting an agreed upon amount of 3% and I have discretion to give more (distributions have been closer to 4%). If you can find someone else to be trustee for your brother I would do it. The beneficiary looks at me as stealing his money even though our parents put this in place. It is a thankless job and destroys any possible harmonious relationship with the beneficiary.
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FBN2014
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Re: Trust investment choices for a difficult beneficiary

Post by FBN2014 » Sat Apr 13, 2019 1:58 pm

letsgobobby wrote:
Sat Apr 13, 2019 11:16 am
No one else thinks 3% is too conservative? The beneficiary is in his sixties. 3.5 or even 4% would be reasonable.

I also think 40/60 is very conservative. Why not 60/40?

You could also annuitize, say, half with an inflation indexed SPIA, and then increase the equity exposure of the other half to 70 or 80%.

Any combination of these actions would increase the beneficiary's income as well as the ability to meet future, rising expenses such as health care.
The reason I went 40/60 is I know how the beneficiary thinks and any losses in the accounts would be his justification for trying to get me removed as trustee again with claims of mismanagement, theft, etc. No offense to bsteiner or other attorneys here, but there are plenty of trust estate litigation attorneys that would represent him no matter how unjustified the claims with the idea of a revised settlement agreement after racking up lots of legal fees. When the market went south last year and the portfolio showed a slight loss, I submitted my accounting to the beneficiary as required and got emails accusing me of mismanagement.
"October is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May March, June, December, August and February." - M. Twain

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Re: Trust investment choices for a difficult beneficiary

Post by FBN2014 » Sat Apr 13, 2019 2:11 pm

Dottie57 wrote:
Sat Apr 13, 2019 11:41 am
letsgobobby wrote:
Sat Apr 13, 2019 11:16 am
No one else thinks 3% is too conservative? The beneficiary is in his sixties. 3.5 or even 4% would be reasonable.

I also think 40/60 is very conservative. Why not 60/40?

You could also annuitize, say, half with an inflation indexed SPIA, and then increase the equity exposure of the other half to 70 or 80%.

Any combination of these actions would increase the beneficiary's income as well as the ability to meet future, rising expenses such as health care.
The 40/60 will have less volatility than 60/40. I am unclear if SWR is being used or if a certain percent of remaining balance is used.

Agree about annuity with portion of funds for an annuity. Leave some for medical or other emergencies later in life.
Correct, 40/60 volatility is less. In 2008-2009 the backtested drawdown was about 16%. A 3% distribution for the following year is calculated based on the account value on December 31st.
"October is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May March, June, December, August and February." - M. Twain

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Re: Trust investment choices for a difficult beneficiary

Post by FBN2014 » Sat Apr 13, 2019 2:32 pm

afan wrote:
Sat Apr 13, 2019 1:31 pm
For this situation it is hard to see any satisfactory solution that continues the status quo. That would mean the trust continues, some trustee makes the investment and distribution decisions and the beneficiary continues to complain.

Dumping the trust on a corporate trustee would get the OP out of it, but it could be difficult to find a trustee that would take the job. This is a small amount of money by trust standards. Many trust companies would not consider any trust this size. For those that would take something this small it would only be profitable if there were nearly no work to do. A small trust means small fees and a disgruntled beneficiary means high costs.

If the assets were much higher, say 100 fold, a company might figure it could do well even if they had to deal with the beneficiary. Perhaps farm out as much as possible to outside counsel and charge the trust for the work.

At this size, it would hardly be worth it.
Plus, the fees would eat up much of the income each year.

That is why the annuity is so appealing.
But the other assets would then be too small for any trust company, which would leave the OP in the trustee business forever.

The current plan may be giving the beneficiary too much money, to the detriment of those remainder people who are supposed to get something. Perhaps get an opinion about that from an experienced trusts and estates lawyer. Figure out a responsible division of income between the difficult beneficiary and the remainder people, and do what the lawyer suggests about getting all concerned to agree. The primary beneficiary may not agree but may find himself confronted by a trustee who is playing it perfectly by the book. Get court approval if possible. [color=#FF0000I have been told my attorney to play it by the book as you said. Do not offer him advice. Answer any complaints by mail in a professional manner without any snide comments, etc. I have been doing that.
][/color]
Annuity with no term certain for the trust that is only for the primary beneficiary. Conventional management of the other trust with the division between primary and remainder people spelled out in the court approved agreement. If possible, take the costs for all this legal work from the trust that is only for the primary beneficiary. This seems like a reasonable compromise which I will investigate. I like the idea of a remaining trust continuing to grow so that something is left for the remaindermen.

At that point the OP would still be trustee and still have some interaction with the difficult beneficiary but there would be no remaining discretion. I would not put this in place without beneficiary's approval with him being represented by an attorney.

One problem: if the beneficiary still makes trouble, then there would be no trust assets to pay an attorney in the future. Against this, consider setting aside some amount to pay trust expenses and buying an annuity with the rest. If the trust owned the annuity and received the payments, then OP could replenish the expense fund from the annuity payments. It might help for the beneficiary to know this. The more he forces the trust to spend on legal fees the less he collects as income.He is well aware of this as I have so stated to him in the past. With his latest complaints that I am mismanaging because the portfolio showed a small loss in 2018, I sensed that he was going to go attorney shopping to file another complaint against me. My response to him via email was that I would reply after I consulted my attorney. Then he backed off saying he didn't want attorneys to get involved.

In addition to legal fees there would be tax preparation and accounting costs, for example.
"October is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May March, June, December, August and February." - M. Twain

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Re: Trust investment choices for a difficult beneficiary

Post by trustquestioner » Sat Apr 13, 2019 3:18 pm

I would just give him all the money and make him sign something saying at what he wants and he won’t sue you. What a mess - no reasoning with people like this.

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Re: Trust investment choices for a difficult beneficiary

Post by celia » Sat Apr 13, 2019 5:15 pm

Why does the trustee need to get the approval of the beneficiary? Does the trust recommend that? The fact that the beneficiary is "difficult" is irrelevant to the trustee doing the best job he/she can. Assume the beneficiary is not communicating with you (for decision-making purposes) and continue doing the best job you can.

It might help the "relationship" if a little empathy was shown, even if it is only "I'm sorry, but the trust has limitations I have to follow. I wish I could give you more, but then, according to statistics, the trust would run out of money."

Sometimes we are given a situation that doesn't have a good solution, but, given the resources we have, all we can do is the best we can. I would also make sure the beneficiary always has good health insurance, to minimize future risks.

OP, Please continue doing the best you can. You didn't cause the difficulties here, but are just the middleman doing the best you can for your brother.

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Re: Trust investment choices for a difficult beneficiary

Post by cherijoh » Sat Apr 13, 2019 5:45 pm

dbr wrote:
Thu Apr 11, 2019 4:13 pm
As a devil's advocate position it would seem that simply turning over the entirety of the assets to the beneficiary would meet the terms of the trust. Note that as pointed out above using the assets to buy an annuity has the same result except that the interests of the remaindermen can be partially protected by some annuity rider and the beneficiary has been hamstrung in his use of the assets. It would seem a question would be why this trust exists in the first place. It is possible the beneficiary is justified in his complaints.

I am not a lawyer so the only real answer is to consult an attorney.
Limiting the access of the beneficiary to the assets was probably the purpose of the trust in the first place - had there not been a trust this person might have spent all their assets by now without the constraints of a trust and trustee.

I have a friend who was the executrix of her parents' wills. One of her brothers demanded "his share" of their father's estate when her dad passed away. Their mother was still alive and had inherited everything, so this caused a big stink. (The guy had substance abuse issues and a spotty work history). When her mom eventually passed away his portion of the estate was invested in an annuity, IIRC. I do know they didn't give it to him outright.

Or in the OP's case it could be a second spouse situation where the remaining beneficiaries are the kids from a first marriage. If the trustee is the step-child of the beneficiary that could also be a fraught situation leading to conflict. {I finished reading the rest of the thread and see the beneficiary is a sibling like my friend's situation}.
Last edited by cherijoh on Sat Apr 13, 2019 6:17 pm, edited 1 time in total.

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Re: Trust investment choices for a difficult beneficiary

Post by gwe67 » Sat Apr 13, 2019 5:46 pm

If going the annuity route, be aware that the beneficiary could later sell the annuity for a lump sum, which seems to be the undesirable result that the trust prevents.
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Re: Trust investment choices for a difficult beneficiary

Post by Sandtrap » Sat Apr 13, 2019 5:57 pm

cherijoh wrote:
Sat Apr 13, 2019 5:45 pm
dbr wrote:
Thu Apr 11, 2019 4:13 pm
As a devil's advocate position it would seem that simply turning over the entirety of the assets to the beneficiary would meet the terms of the trust. Note that as pointed out above using the assets to buy an annuity has the same result except that the interests of the remaindermen can be partially protected by some annuity rider and the beneficiary has been hamstrung in his use of the assets. It would seem a question would be why this trust exists in the first place. It is possible the beneficiary is justified in his complaints.

I am not a lawyer so the only real answer is to consult an attorney.
Limiting the access of the beneficiary to the assets was probably the purpose of the trust in the first place - had there not been a trust this person might have spent all their assets by now without the constraints of a trust and trustee.

I have a friend who was the executrix of her parents' wills. One of her brothers demanded "his share" of their father's estate when her dad passed away. Their mother was still alive and had inherited everything, so this caused a big stink. (The guy had substance abuse issues and a spotty work history). When her mom eventually passed away his portion of the estate was invested in an annuity, IIRC. I do know they didn't give it to him outright.

Or in the OP's case it could be a second spouse situation where the remaining beneficiaries are the kids from a first marriage. If the trustee is the step-child of the beneficiary that could also be a fraught situation leading to conflict.
Exactly. I've seen this often.
There can be a "no contest" clause with a variety of details in the trust.
IE: if a beneficiary should "such and such" then they are excluded from the trust/will.

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Re: Trust investment choices for a difficult beneficiary

Post by FBN2014 » Sat Apr 13, 2019 5:58 pm

celia wrote:
Sat Apr 13, 2019 5:15 pm
Why does the trustee need to get the approval of the beneficiary? Does the trust recommend that? The fact that the beneficiary is "difficult" is irrelevant to the trustee doing the best job he/she can. Assume the beneficiary is not communicating with you (for decision-making purposes) and continue doing the best job you can.

It might help the "relationship" if a little empathy was shown, even if it is only "I'm sorry, but the trust has limitations I have to follow. I wish I could give you more, but then, according to statistics, the trust would run out of money."

Sometimes we are given a situation that doesn't have a good solution, but, given the resources we have, all we can do is the best we can. I would also make sure the beneficiary always has good health insurance, to minimize future risks.

OP, Please continue doing the best you can. You didn't cause the difficulties here, but are just the middleman doing the best you can for your brother.
Thank you for the kind words and suggestions. Good advice. I know that I don't need his approval for any decisions that I make. I am only trying to lessen tensions to ward off any unjustified legal action on his part that will just squander trust funds. I am sticking to the book as far as my role as a fiduciary and consulting with my attorney as needed who is an excellent estate lawyer with experience in estate and trust litigation.
"October is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May March, June, December, August and February." - M. Twain

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Re: Trust investment choices for a difficult beneficiary

Post by cherijoh » Sat Apr 13, 2019 6:27 pm

FBN2014 wrote:
Sat Apr 13, 2019 5:58 pm
celia wrote:
Sat Apr 13, 2019 5:15 pm
Why does the trustee need to get the approval of the beneficiary? Does the trust recommend that? The fact that the beneficiary is "difficult" is irrelevant to the trustee doing the best job he/she can. Assume the beneficiary is not communicating with you (for decision-making purposes) and continue doing the best job you can.

It might help the "relationship" if a little empathy was shown, even if it is only "I'm sorry, but the trust has limitations I have to follow. I wish I could give you more, but then, according to statistics, the trust would run out of money."

Sometimes we are given a situation that doesn't have a good solution, but, given the resources we have, all we can do is the best we can. I would also make sure the beneficiary always has good health insurance, to minimize future risks.

OP, Please continue doing the best you can. You didn't cause the difficulties here, but are just the middleman doing the best you can for your brother.
Thank you for the kind words and suggestions. Good advice. I know that I don't need his approval for any decisions that I make. I am only trying to lessen tensions to ward off any unjustified legal action on his part that will just squander trust funds. I am sticking to the book as far as my role as a fiduciary and consulting with my attorney as needed who is an excellent estate lawyer with experience in estate and trust litigation.
Whenever I read threads like this it always makes me wonder how children from the same parents can turn out so differently. OP, you sound reliable and responsible - which is probably how you landed the role of trustee. Your brother, on the other hand, sounds like a disaster waiting to happen. (Sorry to be so blunt). I too wish you the best and a continued well of patience to deal with the difficult situation.

These threads also make me thank my lucky stars that my brother and I sailed through settling my mom's estate and are closer than ever.

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Re: Trust investment choices for a difficult beneficiary

Post by celia » Sat Apr 13, 2019 7:02 pm

cherijoh wrote:
Sat Apr 13, 2019 6:27 pm
Whenever I read threads like this it always makes me wonder how children from the same parents can turn out so differently. OP, you sound reliable and responsible - which is probably how you landed the role of trustee. Your brother, on the other hand, sounds like a disaster waiting to happen. (Sorry to be so blunt). I too wish you the best and a continued well of patience to deal with the difficult situation.

These threads also make me thank my lucky stars that my brother and I sailed through settling my mom's estate and are closer than ever.
Cherijoh, A lot of the time it is the luck of the draw. DH and I both come from large families so the number of relatives we have is probably larger than many people have. Every one had good parenting, but we were not all created the same. Between us, there are several Special Needs relatives. Sometimes it is just the chromosomes you were born with, such as Downs Syndrome, an accident at birth (cord wrapped around the baby's neck), an accident later in life (car accident), or cognitive decline while aging. Then there are the cases where someone abused drugs or alcohol or made bad choices. This is not to say I've seen all of this, but is an example of recognizing that some of us are not as fortunate as others.

Having visited the countries where our families came from, with our kids, we all appreciate what we have and our responsibility to help others, especially relatives. It was the luck of the draw that I was born where I was whereas a cousin was born someplace without many opportunities. Our circumstances could have been just the opposite of what we "were given".

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Re: Trust investment choices for a difficult beneficiary

Post by FoolStreet » Sat Apr 13, 2019 9:28 pm

FBN2014 wrote:
Thu Apr 11, 2019 7:12 pm
dodecahedron wrote:
Thu Apr 11, 2019 2:43 pm
trustquestioner wrote:
Thu Apr 11, 2019 2:38 pm
The annuity seems pretty bad to me.
Impossible to say whether the annuity is bad or not without knowing the age and health status of the beneficiary.

Also, your proposed annuity would leave the secondary beneficiaries with nothing if the primary lives to his life expectancy or beyond. Is that in keeping with the original grantor´s intentions.
Beneficiary is 62, in good health. There are actually two trusts: family trust and insurance trust. The insurance trust has this wording regarding remaindermen: "The trustee is directed to conserve and accumulate the trust estate to the extent feasible , due to the unforeseeablity of the future needs of ________. However, accumulation or use of the trust is to be determined solely on the basis of the needs of ______, without regard to the interests of the remaindermen." The family trust does not have this language.
The words “without regard to the interests of the remainder men” implies that an annuity is fine. BUT, the simple fact that remainder men are included at all heavily implies that there should be something remaining. Or else, the trust could have specified the annuity to begin with. But it didn’t. So it seems like an annuity is not appropriate

I am speaking based on some assumptions based on your description of the beneficiary as being difficult, which clouds my judgement with stereotypes of spendthrifts or they take the money and efforts of the trustee for granted. In truth there is probably more to consider. Is the beneficiary disgruntled because they can’t pay for their disabled needs? Are the remainder men well off and don’t even care about any money left?

Probably somewhere in the middle (although I’m on the side of the Boglehead member on this situation). If there is family drama, either a stiff backbone position, or a 3rd party corporate trustee are realistic options.

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Re: Trust investment choices for a difficult beneficiary

Post by FBN2014 » Sat Apr 13, 2019 10:19 pm

FoolStreet wrote:
Sat Apr 13, 2019 9:28 pm
FBN2014 wrote:
Thu Apr 11, 2019 7:12 pm
dodecahedron wrote:
Thu Apr 11, 2019 2:43 pm
trustquestioner wrote:
Thu Apr 11, 2019 2:38 pm
The annuity seems pretty bad to me.
Impossible to say whether the annuity is bad or not without knowing the age and health status of the beneficiary.

Also, your proposed annuity would leave the secondary beneficiaries with nothing if the primary lives to his life expectancy or beyond. Is that in keeping with the original grantor´s intentions.
Beneficiary is 62, in good health. There are actually two trusts: family trust and insurance trust. The insurance trust has this wording regarding remaindermen: "The trustee is directed to conserve and accumulate the trust estate to the extent feasible , due to the unforeseeablity of the future needs of ________. However, accumulation or use of the trust is to be determined solely on the basis of the needs of ______, without regard to the interests of the remaindermen." The family trust does not have this language.
The words “without regard to the interests of the remainder men” implies that an annuity is fine. BUT, the simple fact that remainder men are included at all heavily implies that there should be something remaining. Or else, the trust could have specified the annuity to begin with. But it didn’t. So it seems like an annuity is not appropriate Trust does mention annuity as an allowed investment by trustee. Mention of remaindermen perhaps was included in the unlikely event that the beneficiary would predecease the grantor.

I am speaking based on some assumptions based on your description of the beneficiary as being difficult, which clouds my judgement with stereotypes of spendthrifts or they take the money and efforts of the trustee for granted. In truth there is probably more to consider. Is the beneficiary disgruntled because they can’t pay for their disabled needs? Are the remainder men well off and don’t even care about any money left? Beneficiary is definitely a spendthrift. Wants a new house (lives rent free now in deceased parent's house and asked trustee to pay for a $300,000 new one), requested $100,000 so girlfriend could open a restaurant, wants a new $40,000 vehicle paid in full, etc.

Probably somewhere in the middle (although I’m on the side of the Boglehead member on this situation). If there is family drama, either a stiff backbone position, or a 3rd party corporate trustee are realistic options.
"October is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May March, June, December, August and February." - M. Twain

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Re: Trust investment choices for a difficult beneficiary

Post by celia » Sat Apr 13, 2019 11:32 pm

FBN2014 wrote:
Sat Apr 13, 2019 10:19 pm
FoolStreet wrote:
Sat Apr 13, 2019 9:28 pm
The words “without regard to the interests of the remainder men” implies that an annuity is fine. BUT, the simple fact that remainder men are included at all heavily implies that there should be something remaining. Or else, the trust could have specified the annuity to begin with. But it didn’t. So it seems like an annuity is not appropriate Trust does mention annuity as an allowed investment by trustee. Mention of remaindermen perhaps was included in the unlikely event that the beneficiary would predecease the grantor.
It seems, to me, that the trust was meant for the beneficiary's lifetime support, only. No-one knows when he will die so the money needs to last as long as he does. That's my interpretation, based on what has been said. Only after the beneficiary dies, will the rest of the money be given to someone else(s). That's why they are called REMAINDERmen. They get what remains, if anything, but something doesn't have to remain. For example, if the money runs out before the beneficiary dies, he will have to live without using the trust fund payments.

When creating the trust, all the possible, although unlikely, scenarios need to be accounted for. In this case, any of these things could be the first to happen:
* parents (grantors) die
* successor trustee dies
* beneficiary dies
* all the remaindermen die
* trust assets are exhausted
* trust assets grow larger (say, someone else could die and leave their assets to this trust for the beneficiary's benefit)

Since the grantors are older than anyone else by one generation, it is likely they will die first. Then any of the remaining things could be the NEXT thing to happen and the grantor's wishes should then still be carried out by the trust. So something has to be said for what happens to the remaining assets after the beneficiary dies. If the only role for the remaindermen is to share the remainder that the beneficiary didn't need, that's fine.
Last edited by celia on Sat Apr 13, 2019 11:52 pm, edited 2 times in total.

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Re: Trust investment choices for a difficult beneficiary

Post by bayview » Sat Apr 13, 2019 11:46 pm

I have probably missed this, but how do the provisions of the other trust compare to this (insurance?) trust, both for the PITA beneficiary and for the remaindermen?

Will the beneficiary live and die on the distributions from this trust, or will the other supplement it?

And similar question as to the remaindermen.

As to this trust and an annuity, could the funds be used for (for instance) three separate and smaller annuities, ten years apart? Perhaps that would address inflation concerns, plus the real possibility of much greater income needs for AL/LTC.
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Re: Trust investment choices for a difficult beneficiary

Post by FBN2014 » Sun Apr 14, 2019 7:38 am

bayview wrote:
Sat Apr 13, 2019 11:46 pm
I have probably missed this, but how do the provisions of the other trust compare to this (insurance?) trust, both for the PITA beneficiary and for the remaindermen?The family trust does not have the language that the interests of the primary beneficiary should be paramount. I suspect this is so because the insurance trust was written after my brother went through bankruptcy. However, both trusts were from the same law firm.I suspect that the family trust was not amended because of an oversight.

Will the beneficiary live and die on the distributions from this trust, or will the other supplement it? Distributions are being taken from both trusts now for a total of about $38,000/year.a

And similar question as to the remaindermen. Not sure what you mean.

As to this trust and an annuity, could the funds be used for (for instance) three separate and smaller annuities, ten years apart? Perhaps that would address inflation concerns, plus the real possibility of much greater income needs for AL/LTC. Laddering smaller annuities is a possibility but it would leave me in the trustee business ongoing and distributions would still have to come from the stock/bond portfolio. My idea was just convert it all to the maximum annuity payout and tell the beneficiary that this is the maximum amount you will ever receive and if you don't manage your expenses properly then it's on you and not my responsibility. As for LTC needs, there is only a finite amount of money. If LTC was required then I suppose he could qualify for Medicaid which would pay the difference between what LTC costs and the annuity payout.
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Re: Trust investment choices for a difficult beneficiary

Post by student » Sun Apr 14, 2019 8:13 am

bsteiner wrote:
Thu Apr 11, 2019 3:31 pm
An interesting question. I'm not sure it's wise. It might be better for the trustees to resign in favor of someone better able to deal with the beneficiaries, perhaps a bank or trust company. There are some that will take trusts of this size. But that doesn't mean the trustees will be held liable.

The remainder beneficiaries might claim that the trust wasn't used up for the benefit of the primary beneficiary, but rather it was in substantial part used up by the cost of the annuity. But it might be difficult for them to explain that.

The trustee might want to get the consent of the adult remainder beneficiaries. Note that in the Dumont case, https://law.justia.com/cases/new-york/o ... 50647.html (Monroe County Surrogate's Court), https://scholar.google.com/scholar_case ... =4,215,216 (4th Dept.), the presumptive remainder beneficiaries died and the remote contingent beneficiaries took.

I'm only aware of one case where beneficiaries brought a claim against a trustee for investing in an annuity, the Berget case in Minnesota, https://cases.justia.com/minnesota/cour ... 1418077703, in which the appellate court ruled in favor of the trustee.
+1. The trustees do not need the headaches. Let the professionals handle this.

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Re: Trust investment choices for a difficult beneficiary

Post by cherijoh » Sun Apr 14, 2019 8:29 am

celia wrote:
Sat Apr 13, 2019 7:02 pm
cherijoh wrote:
Sat Apr 13, 2019 6:27 pm
Whenever I read threads like this it always makes me wonder how children from the same parents can turn out so differently. OP, you sound reliable and responsible - which is probably how you landed the role of trustee. Your brother, on the other hand, sounds like a disaster waiting to happen. (Sorry to be so blunt). I too wish you the best and a continued well of patience to deal with the difficult situation.

These threads also make me thank my lucky stars that my brother and I sailed through settling my mom's estate and are closer than ever.
Cherijoh, A lot of the time it is the luck of the draw. DH and I both come from large families so the number of relatives we have is probably larger than many people have. Every one had good parenting, but we were not all created the same. Between us, there are several Special Needs relatives. Sometimes it is just the chromosomes you were born with, such as Downs Syndrome, an accident at birth (cord wrapped around the baby's neck), an accident later in life (car accident), or cognitive decline while aging. Then there are the cases where someone abused drugs or alcohol or made bad choices. This is not to say I've seen all of this, but is an example of recognizing that some of us are not as fortunate as others.

Having visited the countries where our families came from, with our kids, we all appreciate what we have and our responsibility to help others, especially relatives. It was the luck of the draw that I was born where I was whereas a cousin was born someplace without many opportunities. Our circumstances could have been just the opposite of what we "were given".
Celia,

I wasn't referring to special needs when I said "turned out so different". Then it is clear why they may need extra support - especially financially. I meant adult siblings without any apparent limitations who have been given the same upbringing and skillset to survive. Some of them just seem to squander every opportunity and blame it on everyone but themselves. Others leave the nest and become functioning adults and contributing members of society from day 1.

I am very sympathetic to people who genuinely need support, but I'm pretty sure I would have trouble staying sympathetic with someone who felt entitled (like my friend's brother) or was abusive (like the OP's brother).

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Re: Trust investment choices for a difficult beneficiary

Post by Sandtrap » Sun Apr 14, 2019 9:07 am

cherijoh wrote:
Sun Apr 14, 2019 8:29 am
celia wrote:
Sat Apr 13, 2019 7:02 pm
cherijoh wrote:
Sat Apr 13, 2019 6:27 pm
Whenever I read threads like this it always makes me wonder how children from the same parents can turn out so differently. OP, you sound reliable and responsible - which is probably how you landed the role of trustee. Your brother, on the other hand, sounds like a disaster waiting to happen. (Sorry to be so blunt). I too wish you the best and a continued well of patience to deal with the difficult situation.

These threads also make me thank my lucky stars that my brother and I sailed through settling my mom's estate and are closer than ever.
Cherijoh, A lot of the time it is the luck of the draw. DH and I both come from large families so the number of relatives we have is probably larger than many people have. Every one had good parenting, but we were not all created the same. Between us, there are several Special Needs relatives. Sometimes it is just the chromosomes you were born with, such as Downs Syndrome, an accident at birth (cord wrapped around the baby's neck), an accident later in life (car accident), or cognitive decline while aging. Then there are the cases where someone abused drugs or alcohol or made bad choices. This is not to say I've seen all of this, but is an example of recognizing that some of us are not as fortunate as others.

Having visited the countries where our families came from, with our kids, we all appreciate what we have and our responsibility to help others, especially relatives. It was the luck of the draw that I was born where I was whereas a cousin was born someplace without many opportunities. Our circumstances could have been just the opposite of what we "were given".
Celia,

I wasn't referring to special needs when I said "turned out so different". Then it is clear why they may need extra support - especially financially. I meant adult siblings without any apparent limitations who have been given the same upbringing and skillset to survive. Some of them just seem to squander every opportunity and blame it on everyone but themselves. Others leave the nest and become functioning adults and contributing members of society from day 1.

I am very sympathetic to people who genuinely need support, but I'm pretty sure I would have trouble staying sympathetic with someone who felt entitled (like my friend's brother) or was abusive (like the OP's brother).
"Celia" and "Cherijoh" bring up excellent points. Thanks.

Unfortunately, so true . . . and unpredictable.
This is why the book, "Beyond the Grave" by Condon is often recommended on this forum. Not so much for the legal technicalities but the wide variety of family and situational dynamics (both negative and positive) that it brings to light. While it may not be always recommended by legal professionals, from a lay standpoint, it has it's value.

Actionably: this is why most should seek legal counsel and consider "all" and "anything" that might happen when drawing up a will/trust. Because, if things can happen, they will. There are so many possibilities; from "special needs", to "long term care", to fraud, redirection of funds, manipulation of elders, substance abuse, etc. All the more reason for careful and professionally guided planning taking into account all family dynamics.

Expert legal counsel can draw up a trust, but only the grantor can ensure that the "spirit and intention of the trust (beyond the grave)" is communicated fully, completely, and without question.

cherijoh
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Re: Trust investment choices for a difficult beneficiary

Post by cherijoh » Sun Apr 14, 2019 4:06 pm

Sandtrap wrote:
Sun Apr 14, 2019 9:07 am
Unfortunately, so true . . . and unpredictable.
This is why the book, "Beyond the Grave" by Condon is often recommended on this forum. Not so much for the legal technicalities but the wide variety of family and situational dynamics (both negative and positive) that it brings to light. While it may not be always recommended by legal professionals, from a lay standpoint, it has it's value.

Actionably: this is why most should seek legal counsel and consider "all" and "anything" that might happen when drawing up a will/trust. Because, if things can happen, they will. There are so many possibilities; from "special needs", to "long term care", to fraud, redirection of funds, manipulation of elders, substance abuse, etc. All the more reason for careful and professionally guided planning taking into account all family dynamics.

Expert legal counsel can draw up a trust, but only the grantor can ensure that the "spirit and intention of the trust (beyond the grave)" is communicated fully, completely, and without question.
Very good point about communicating the "spirit and intention" of a will and/or trust.

afan
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Re: Trust investment choices for a difficult beneficiary

Post by afan » Sun Apr 14, 2019 4:54 pm

As long as the difficult beneficiary is also among the beneficiaries of the family trust, I don't see how to make a clean break.

Maybe the lawyer can think of a way to make a transfer of money to the beneficiary out of the family trust that would end his claim to anything else from it.

Then the OP could do the annuity route with the insurance trust and, depending on how the transfer from the family trust was structured, perhaps add that in.
Distribute the annuity to the beneficiary, terminate the insurance trust, and be done with the beneficiary.

This would leave the beneficiary with the ability to sell the annuity and blow the money, but at some point the trustee is allowed to give up. As long as the beneficiary could not come after the trustee and the family trust then he would be on his own to live with the consequences of his decisions.

Who owns what used to be the parents' house? The trust? All the heirs jointly? Does the OP have any responsibility for the house? If so, is letting the beneficiary live there for free neglecting responsibilities to the other beneficiaries? If the house were sold and the proceeds divided, would any other individuals get some of the money? Depending on the answers, the OP may be disadvantaging the others.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

Carefreeap
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Re: Trust investment choices for a difficult beneficiary

Post by Carefreeap » Sun Apr 14, 2019 5:50 pm

Gill wrote:
Fri Apr 12, 2019 4:31 pm
afan wrote:
Fri Apr 12, 2019 10:46 am
Gill, in your days as a trust officer would you do any due diligence on the beneficiaries before accepting appointment as a trustee? If not, I assume you found yourself with some difficult ones. What did you do?
Although we were always anxious to put new accounts on the books, we always did our best to investigate all aspects of a new trust before accepting the role of trustee, usually even more so in the case of an ongoing trust with a current trustee. The beneficiary was certainly an important aspect of our inquiry and a very difficult beneficiary could be a reason for declining a trust. As I mentioned above, I'd certainly have been inclined to refuse a situation such as has been described in this thread.

I often think of a guardianship that had been accepted in the 1960's by our bank before I first entered the business. A two-year old boy had inherited outright from his grandmother over $1 million which would be the equivalent of $8 million or more today. Under New York law this was held in a guardianship until he reached age 21 at which time he would receive the assets outright. Inheriting this money totally ruined him. The account became an absolute nightmare when he was in his teens including calls to the trust officer in the middle of the night from police for various offenses committed by the ward and constant requests for funds to bail him out of trouble. The account had diminished considerably when he reached majority at 21 and the bank was relieved to turn over to him the balance remaining. As appealing as the account sounded at its inception, the bank had 19 years to regret ever accepting it. It was a good lesson for me early in my career to learn that some accounts are just not worth it.
Gill
Did you ever try Googling his name to see what became of him; whether he got his act together or wound up self-destructing like so many do?

DH's uber wealthy side of the family had a lot of dysfunction. It was certainly an eye-opener to me that even if you don't need a vocation you need an avocation.

I bet you Trust Officers had some amusing stories too. The Trustee for DFIL required that he fill out a budget each year. Every year he would write a letter complaining about how he was having trouble making ends meet and sometimes multiple letters in one year. Poor thing was living in Coastal Southern California, remodeling expensive homes, buying his wiv(es) designer clothes while he was forced to sell boats after retiring from the Navy. Some of the responses from the Trust officer were priceless. One was particularly good and sounded just like a mom explaining to a five year old that he couldn't have his cake and eat it too. :oops:

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FBN2014
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Re: Trust investment choices for a difficult beneficiary

Post by FBN2014 » Sun Apr 14, 2019 7:10 pm

afan wrote:
Sun Apr 14, 2019 4:54 pm
As long as the difficult beneficiary is also among the beneficiaries of the family trust, I don't see how to make a clean break.

Maybe the lawyer can think of a way to make a transfer of money to the beneficiary out of the family trust that would end his claim to anything else from it.

Then the OP could do the annuity route with the insurance trust and, depending on how the transfer from the family trust was structured, perhaps add that in.
Distribute the annuity to the beneficiary, terminate the insurance trust, and be done with the beneficiary.

This would leave the beneficiary with the ability to sell the annuity and blow the money, but at some point the trustee is allowed to give up. As long as the beneficiary could not come after the trustee and the family trust then he would be on his own to live with the consequences of his decisions.

Who owns what used to be the parents' house? The trust? 1/2 owned by trust for brother, 1/2 owned by trustee as other beneficiaryAll the heirs jointly? Does the OP have any responsibility for the house? I decided to allow brother to live there and I would not sell house because of his poor track record when he did own his own home - 2 foreclosures. I didn't want him to end up homeless.If so, is letting the beneficiary live there for free neglecting responsibilities to the other beneficiaries? If the house were sold and the proceeds divided, would any other individuals get some of the money? If I am going to make a clean break from ongoing responsibility for a person who does not appreciate my efforts then I would have his trust buyout my share before doing the annuity strategy. He would then be responsible for maintaining the house, paying the property taxes, and homeowners insurance. Based on his past history, I believe he will end up losing the home, but at this point I value my sanity over concern for his future behavior.Depending on the answers, the OP may be disadvantaging the others.
"October is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May March, June, December, August and February." - M. Twain

afan
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Re: Trust investment choices for a difficult beneficiary

Post by afan » Sun Apr 14, 2019 8:44 pm

Then the trust would own the home? You would distribute the home from the trust to the beneficiary?

So the only remaining issue would getting the beneficiary out of the family trust.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

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FBN2014
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Re: Trust investment choices for a difficult beneficiary

Post by FBN2014 » Sun Apr 14, 2019 9:44 pm

afan wrote:
Sun Apr 14, 2019 8:44 pm
Then the trust would own the home? You would distribute the home from the trust to the beneficiary?Yes, he can have the house. I am thinking that perhaps one of the trusts can be decanted so that the terms are identical and then merged to purchase the annuity. My reading of the law for decanting seems to indicate that it can be done as a non-judicial settlement if all beneficiaries agree. One of the attorneys in my law firm wrote an article explaining that it can be done like that. I am sure my brother would agree to it in exchange for me not being his trustee going forward.

So the only remaining issue would getting the beneficiary out of the family trust.
"October is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May March, June, December, August and February." - M. Twain

Carefreeap
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Re: Trust investment choices for a difficult beneficiary

Post by Carefreeap » Mon Apr 15, 2019 9:54 am

FBN2014 wrote:
Sun Apr 14, 2019 9:44 pm
afan wrote:
Sun Apr 14, 2019 8:44 pm
Then the trust would own the home? You would distribute the home from the trust to the beneficiary?Yes, he can have the house. I am thinking that perhaps one of the trusts can be decanted so that the terms are identical and then merged to purchase the annuity. My reading of the law for decanting seems to indicate that it can be done as a non-judicial settlement if all beneficiaries agree. One of the attorneys in my law firm wrote an article explaining that it can be done like that. I am sure my brother would agree to it in exchange for me not being his trustee going forward.

So the only remaining issue would getting the beneficiary out of the family trust.
Yeah, this is really an unfair situation that your parents put you in. Your brother deeply resents that you're the one in control. I could very well see that I would have been in the same situation had my parents not had so many financial problems themselves. My brother "bought" the family house after my parents split in 1996. He was 35. For the next 12+ years he was in some kind of foreclosure, finally losing the house in 2009. Property taxes were $700 a year! House would be worth about $1M had he not kept refinancing and pulling out cash.

At some point you realize they are never going to change and they certainly don't want your help or advice!

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Re: Trust investment choices for a difficult beneficiary

Post by prudent » Mon Apr 15, 2019 10:22 am

While sympathetic to the OP's plight because a family member is involved, I don't believe a trustee must be permanently chained to the job in a no-win situation. Seems clear that there is no optimum solution. The trustee cannot guarantee the beneficiary might make bad choices no matter what and that doesn't mean the trustee is not doing the best job possible. If the beneficiary can sell an annuity ("I want cash now"), and the beneficiary is legally of sound mind, that's not the trustee's problem. No one is suggesting the trustee ought to micromanage the yearly distributions now in case the beneficiary makes bad choices, how is the annuity any different in concept?

It's unfair to say an annuity is wrong if the beneficiary could sell it for cash. The beneficiary wants more income now. An annuity would provide that as well as free the trustee from this problem. And if there's a way to prevent it from being sold for "cash now", perhaps that sounds better, but the argument flips again if the beneficiary has a sudden, large emergency need for cash... and it can't be done if there's no way to pull more from the annuity due to restrictions. There's just no perfect solution to protect the beneficiary from himself.

If the trustee's counsel feels an annuity is appropriate, and the beneficiary's counsel agrees, that's as much due diligence and fiduciary duty as is necessary IMHO. And if the beneficiary's counsel disagrees, resign as trustee and let the court decide. Let the trust pay for the beneficiary's counsel. Let the trustee be free of this trust albatross.

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Re: Trust investment choices for a difficult beneficiary

Post by GreenGrowTheDollars » Mon Apr 15, 2019 11:49 am

prudent wrote:
Mon Apr 15, 2019 10:22 am
While sympathetic to the OP's plight because a family member is involved, I don't believe a trustee must be permanently chained to the job in a no-win situation. Seems clear that there is no optimum solution. The trustee cannot guarantee the beneficiary might make bad choices no matter what and that doesn't mean the trustee is not doing the best job possible. If the beneficiary can sell an annuity ("I want cash now"), and the beneficiary is legally of sound mind, that's not the trustee's problem. No one is suggesting the trustee ought to micromanage the yearly distributions now in case the beneficiary makes bad choices, how is the annuity any different in concept?

It's unfair to say an annuity is wrong if the beneficiary could sell it for cash. The beneficiary wants more income now. An annuity would provide that as well as free the trustee from this problem. And if there's a way to prevent it from being sold for "cash now", perhaps that sounds better, but the argument flips again if the beneficiary has a sudden, large emergency need for cash... and it can't be done if there's no way to pull more from the annuity due to restrictions. There's just no perfect solution to protect the beneficiary from himself.

If the trustee's counsel feels an annuity is appropriate, and the beneficiary's counsel agrees, that's as much due diligence and fiduciary duty as is necessary IMHO. And if the beneficiary's counsel disagrees, resign as trustee and let the court decide. Let the trust pay for the beneficiary's counsel. Let the trustee be free of this trust albatross.
Except...the reason the money was left in trust was likely influenced by the spendthrift nature of the beneficiary. I can't see an annuity outside the trust that the beneficiary could turn around and sell tomorrow to buy lottery tickets as respecting the grantor's intent.

Some credit unions now offer trust services. MIght be worth a check to see if they would take on the trustee responsibility. Otherwise, your current investment arrangement sounds reasonable and prudent.

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Re: Trust investment choices for a difficult beneficiary

Post by Gill » Mon Apr 15, 2019 1:58 pm

There has been considerable discussion about the possibility of the beneficiary selling the SPIA if purchased for him but I thought an SPIA could be purchased that was unassignable and therefore couldn't be sold. I reviewed one of my SPIA's which has a provision that I'm the owner and the owner may not be changed. It also says the annuitant may not be changed. No one would accept assignment of annuity benefits unless they could become the owner of the policy. That seems to prevent an assignment of the rights of the contract.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal

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Re: Trust investment choices for a difficult beneficiary

Post by afan » Mon Apr 15, 2019 2:36 pm

Would such a provision prevent the trust from buying the annuity and then assigning it to the beneficiary? The trust would have to purchase the annuity in the beneficiary's name from the start.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

Gill
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Re: Trust investment choices for a difficult beneficiary

Post by Gill » Mon Apr 15, 2019 2:43 pm

afan wrote:
Mon Apr 15, 2019 2:36 pm
Would such a provision prevent the trust from buying the annuity and then assigning it to the beneficiary? The trust would have to purchase the annuity in the beneficiary's name from the start.
Yes, it would seem to. I would think the trust would have to buy the annuity in the name of the beneficiary as annuitant and owner unless the trust was willing to keep the ownership. That would seem to be the ideal way which would make the trust beneficiary only the annuitant.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal

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